AdvisorShares Weekly Market Review – Week Ending 7/29/2016
Highlights of the Prior Week
There Is No Playbook
In this past week’s AdvisorShares AlphaCall, Bob Boyd from Pacific Asset Management said that there was no playbook for how to come out of the type of recession that occurred in 2008. The various monetary and fiscal policies implemented have of course helped, there has been a recovery but the strength of that recovery, based on certain metrics, has been historically weak including when measured by GDP. Q2 GDP of course reported on Friday at 1.2% annualized growth which was a wide miss and Q1 was revised down to 0.8%.
The Federal Open Market Committee (FOMC) met this past week and decided to hold steady. The statement has been interpreted to mean a rate hike is extremely unlikely in September. The November meeting is right before the Presidential election which would seem to take that meeting out of play leaving the first possible opportunity for a hike in December. That is not to predict a December hike so much as to try to frame the remote possibility of a hike before December. The next big data point will be the nonfarm jobs report this Friday and after two very noisy months for this series, the expectation is that 175,000 jobs were created in July.
Although global equities were mixed last week, they were uniformly higher in July as the post-Brexit bounce that started in late June continued through most of July. The Dow Jones Industrial average was up 2.77% for the month, the S&P 500 gained 3.54%, the NASDAQ moved ahead 6.58% (much of the move attributed to mega cap tech and tech related companies that jumped on earnings) and the Russell 2000 was no slouch either at 5.92%. Looking at Europe, the FTSE 100 was better by 3.38%, France saw a 4.77% increase and Germany jumped 6.79%. In Asia the Shanghai Composite was muted with a 1.7% gain while the Hang Seng added 5.38% and the ASX 200 rallied 6.29%.
The Nikkei 225 was very strong in July as it gained 6.38% while the dollar gained slightly against the yen up until July 28th. On the last trading day of the month the yen had a very strong jump to trade with a 102 handle as the Bank of Japan announced an increase in asset purchases as part of its QE that was smaller than expected. It is going to almost double its purchase of equity ETFs and will do more aggressive lending but will not increase its bond purchases…for now? To the extent there is no playbook for coming out of the 2008 global recession, the BOJ has had the pedal to the floor yet over the last year the Nikkei is down 19%, the central bank recently cut its 2016 GDP estimate to 0.9% and its ten-year bond carries a negative yield at -0.19% which was actually higher for the week.
The yield on the Ten Year US Treasury Note fell on the week to 1.45%, the German bund swung back into negative territory to -0.11%, the Swiss ten year charges 0.56% and the UK gilt continued to move lower and now yields 0.68%.
Gold had a strong week with a 2.59% gain with half of the lift coming Friday perhaps in reaction to the weak GDP number in the US as an indication that it will be a long time before rates do indeed rise. West Texas Intermediate Crude continued its recent decline falling another 5.9% to close at $41.46. The painful correlation between equities in crude that plagued investors earlier in the year hasn’t quite come into play again but this is something that participants will be following closely.
Over the weekend, Barron’s ran several articles about ETFs that included a look at the popularity of dividend focused ETFs, specifically ones that were overweight the utility sector. Defensive, higher yielding equity sectors have been bid higher as investors have rotated away from bonds in search of yield. Barron’s points out that the sectors being viewed as bond proxies may get hit especially hard if interest rates ever start to rise.
There were four new funds listed last week including an new actively managed ETF from WBI.
As the fire season heats up Outside Magazine looks at The Tools They Carry: Wildland Firefighters Most Important Gear:
The hotshot’s primary mission on a wildfire is to scratch in a dirt fire line, two- to five-feet wide, around the entire fire. The chingadera (apologies to Spanish speakers) is the most efficient tool for the job and the one most Tahoe Hotshots use in the field. It rakes and scrapes dirt as well as anything, and its stout 8.5-inch head and 40-inch handle are great for getting through roots. A reinforced tab on the top of the collar is used as a hammer to drive in wedges when felling trees.
Time Magazine had an interesting profile of Bobby Lea and his Road Back From Rio. That is not a typo for Lea who at 32 and a world class athlete in a low dollar sport will face some serious financial reality when the games are over as his career will wind down over the next few months.
Although the Olympics might seem like a gateway to a bright future, that won’t necessarily be true for Lea. At 32, he’s nearing the end of his professional cycling career. He’s a top-level competitor, one of the hottest prospects on the 2016 cycling team, but he’s no Lance Armstrong. His specialty—track cycling, not road racing—is obscure and has a limited fan base. Fame and fortune of the kind that have been showered on Olympians like Michael Phelps is simply not going to happen. Lea won’t be on a Wheaties box. He won’t guest-host Saturday Night Live. As, in fact, is the case for most Olympic athletes, there’s no pot of gold at the end of his rainbow.
For July 25th, 2016 to July 29th, 2016
S&P Sector Analysis
As for the sectors of the S&P 500, four outperformed the broad benchmark – Technology, Healthcare, Materials, and Discretionary. The remaining six – Financials, Industrials, Telecom, Utilities, Staples, and Energy – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 3.61% the week ending 7/29/16, with Technology outperforming all, and Energy coming in last.
For July 25th, 2016 to July 29th, 2016
As measured by the S&P 500 sector indices, respective performances were: